Answers to the Fed Questions
1. The Federal Reserve is a central bank. It is a depository for all of the member banks. But it, by itself has no bank deposit anywhere in the entire country because it is the central bank of the entire country. When you or I write a check there must be sufficient funds in our account to cover the check but when the Federal Reserve writes a check it is creating money from nothing! The check written by the Federal Reserve is deposited in the account of one of the commercial banks but is not deducted from the account of another. Here in lies part of the problem because it pays with checks drawn on itself, thus generating newly created deposits with the Federal Reserve.
